RSA’s Lee under fire after profit warning on Irish ‘black hole’

Monday 11 November 2013 12:06 BST

File photo dated 09/08/13 of the RSA logo as shares in More Than parent company RSA plunged today after it suspended three senior executives in its Irish business over "issues" expected to result in a £70 million profits hit. PRESS ASSOCIATION Photo. Issue date: Monday November 11, 2013. RSA chief executive Simon Lee said he was "extremely disappointed" by the disclosure as the group announced an independent review into financial and regulatory controls in the Ireland division. Mr Lee insisted the issues would not have a material long term impact on the group but this was not enough to prevent shares falling by as much as 16% as investors digested the second RSA profits warning in less than a week. See PA story CITY RSA. Photo credit PA

RSA Insurance chief executive Simon Lee was today fighting for his future as the City tore into the company following its second profits warning in less than a week.

Shares in the company tumbled by 14% after three executives at the group’s Irish business were suspended on Friday night following the discovery of a black hole in its accounts. The FTSE 100 insurer said the accounting irregularity was likely to impact its profits by £70 million this year, just days after it had revealed that claims from the St Jude storm and flooding in Canada would also hit its results.

Both setbacks have raised questions over RSA’s full-year dividend and the tenure of Lee, who faces stormy meetings with shareholders this week. He has been under pressure since February when RSA unexpectedly cut its full-year dividend for the first time in a decade.

Euan Stirling, a fund manager at Standard Life Investments, which is a significant shareholder in RSA, said: “Using a Scottish football analogy, I’d say that his coat is on a shoogly peg – in other words not nailed into the wall properly. It’s difficult for [Lee] because he took over at a time when the shares were riding high and since then there has been a series of disappointments. Clearly things have not gone as well as he or shareholders would have expected.”

Lee played down fears that the company will be forced to cuts its dividend for the second consecutive year after the two profit warnings.

However, analysts said RSA now faced a tough few months, having appointed accountants PwC to undertake a review of its Irish business while separately investigating the impact of bodily injury claims in the country.

“[2013] is proving to be a tough year for RSA but the overwhelming majority of the group is in good shape and we expect 2014 to be a better year,” Lee said. “There’s no change to our dividend policy and we are confident we can meet market expectations.”

RSA said it was confident the issues in its Irish businesses had not spread across the group and strongly denied any suggestion that it was related to any acquisition it had made in the market.

Lee added: “No policyholders have been affected and all our Irish businesses continue to operate as normal. Nevertheless, we want to ensure that the actions being taken in Ireland and across the group are correct and that all lessons are learnt.”